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More On Legal & Compliance

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Whistleblowers
A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.

Risk-Based Oversight of Investment Advisors
Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.

The Financial Industry Regulatory Authority (FINRA) announced Thursday that it had ordered Raymond James & Associates, Inc. (RJA) and Raymond James Financial Services, Inc. (RJFS) to pay restitution of $1.69 million to more than 15,500 investors who were charged unfair and unreasonable commissions on securities transactions. FINRA also fined RJA $225,000 and RJFS $200,000.

FINRA found that from Jan. 1, 2006, to Oct. 31, 2010, RJA and RJFS used automated commission schedules for equity transactions that charged more than 15,500 customers nearly $1.69 million in excessive commissions on over 27,000 transactions involving, in most instances, low-priced securities.

RJA and RJFS neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

According to FINRA, the firms’ supervisory systems were “inadequate because the firms established inflated schedules and rates without proper consideration of the factors necessary to determine the fairness of the commissions, including the type of security and the size of the transaction.”

Steve Hollister, public relations manager for Raymond James, told AdvisorOne in an email message that Raymond James was “pleased to have resolved this matter with FINRA.” The commissions that would be refunded under the agreement with FINRA, he said, "involved primarily low-priced securities that were determined by an automated commission schedule, which we revised on July 1, 2011, upon notification of FINRA’s findings. The affected trades represent less than 0.1% of the total equity trades executed by Raymond James during the period reviewed by FINRA. The average impact per affected account over the five-year time period is approximately $110.”

Brad Bennett, FINRA Executive VP and Chief of Enforcement, said in a statement the same day that, “Raymond James failed to adequately monitor its supervisory systems and as a result, both Raymond James & Associates and Raymond James Financial Services overcharged thousands of customers on their securities transactions.” Broker-dealers, he said, “must ensure that their automated systems set commission charges that are fair to investors.”

FINRA said it required the firms to revise their automated commission schedules to conform to the requirements of the Fair Prices and Commissions Rule. In addition to requiring RJA and RJFS to repay approximately $1.69 million in overcharges, FINRA said each firm is required to calculate and repay additional overcharges from Nov. 1, 2010, through the date that each firm revised its schedule.